Last week, VMware's top executives displayed just how worried they are about the competitive threat posed by Amazon's cloud computing service. With customers able to spin up virtual machines in Amazon data centers, VMware is concerned fewer people will buy its virtualization tools.

According to CRN, VMware CEO Pat Gelsinger told service partners at the company's Partner Exchange Conference that if "a workload goes to Amazon, you lose, and we have lost forever." VMware COO Carl Eschenbach jumped on the Amazon theme, saying, "I look at this audience, and I look at VMware and the brand reputation we have in the enterprise, and I find it really hard to believe that we cannot collectively beat a company that sells books."

Given VMware's view of Amazon, Gelsinger and Eschenbach won't like the latest news from the "bookseller," which also happens to be a large IT services provider. Amazon today announced price reductions of up to 27.7 percent for Elastic Compute Cloud Reserved Instances running Linux/UNIX, Red Hat Enterprise Linux, and SUSE Linux Enterprise Server. Reserved instances requiring up-front payments already provide discounts over "on-demand instances," which can be spun up and down at will. Using reserved instances requires a little more advance planning to make sure you get the most bang for your buck—although customers who buy more than they need can sell excess capacity on Amazon's Reserved Instance Marketplace.

The discounts announced today range quite a bit depending on location and the memory and CPU footprint of the instances. In the US, the discounts are anywhere from 10 percent to 27.7 percent. Buying in bulk can save up to 65 percent over on-demand costs (click here for a full price list).

This is just the latest step in an ongoing cloud price war. Last November, Amazon and Google each provided steep price cuts to their storage services, and Microsoft's Windows Azure did the same soon afterward.

VMware, of course, still leads the market for in-house server virtualization. But it has frustrated customers with its pricing, faced a steadily improving challenge from Microsoft's Hyper-V, and is now clearly worried about customers shifting workloads off VMware and on to public clouds.

It doesn't have to be an either/or proposition: customers can have their own virtual servers running in-house and use the Amazon cloud. Amazon's VM import and export tools let customers move VMware virtual machines into Amazon and back out into the customers' data centers.

VMware's focus on being a cloud service provider, as opposed to a seller of cloud-building software to service providers and IT shops, has waxed and waned. VMware and owner EMC recently spun out several cloud products and services into a new joint venture, letting VMware focus on its core competency of data center software, and a greater push into desktop virtualization. VMware today announced that it sold off its SlideRocket online presentation business, but that doesn't necessarily mean it's given up on the idea of being a cloud service provider. It still offers Zimbra e-mail, and the latest unconfirmed rumor is that VMware is building something called "VMware Public Cloud" to compete directly against Amazon.

Whatever the specifics end up being, it's clear VMware hopes to control IT workloads both in customers' data centers and in public clouds. VMware's hardware, software, and services partners will likely play a big role.

"We want to own corporate workload," Gelsinger told partners, according to the CRN article. "We all lose if they end up in these commodity public clouds. We want to extend our franchise from the private cloud into the public cloud and uniquely enable our customers with the benefits of both. Own the corporate workload now and forever."

Promoted Comments

The article misses the largest point of the price drop. It's obviously in response to Rackspace's price drop on their cloud offerings from last month. Rackspace specifically targeted Amazon with the changes. It signals a major point:

Amazon considers Rackspace a real competitor in the cloud space. If Rackspace wasn't a real threat then Amazon would have ignored them just like they have been largely ignoring Microsoft and VMWare.

WMWare isn't all private/local cloud. They have had a public cloud system from in beta for some time (Cloudfoundry). They haven't done nearly enough with it, even though it presents interesting features for application developers.

70 Reader Comments

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

Any executive that isn't sufficiently open minded (read:paranoid) about where the next threat might come from and actually opens his mouth to say dismissive stuff like: "I find it really hard to believe that we cannot collectively beat a company that sells books" deserves to have his lunch taken.

Any executive that isn't sufficiently open minded (read:paranoid) about where the next threat might come from and actually opens his mouth to say dismissive stuff like: "I find it really hard to believe that we cannot collectively beat a company that sells books" deserves to have his lunch taken.

Well judging from the article's picture, he has a future as an understudy for the Blue Man Group.

I've used VMWares workstation product here locally on my machine for software development. Great tools but overpriced for what they offer ME. I bought a license back in August for Workstation 9, worked pretty good - no real problems with it at all.

Then I started using Windows 8 and it includes Hyper-V included. I figured I'd try it out and see how well it works. Turns out it actually boots up my VM's faster than VMware. It's much faster running the VM too, the performance in VMware is really good but I found video performance to be much better in Hyper V.

HyperV does lack audio and usb support; but if you really need those you can just use remote desktop to remote into the local VM.

I dont' see myself ever paying to upgrade or using VMware again.

On the server end, we already use Microsoft SQL Azure and it has been rock solid for database needs. For actual VM's on servers I will be upgrading some of our Windows Server machines to Windows Server 2012 and taking advantage of the 'free' Hyper-V.

VMware seems they may have run their course, while they provide an excellent product there are just too many alternatives that are as good, if not better and usually at lower costs available to consider VMware.

Amazon has been very good about doing in-depth postmortems when they have had service outages. I'm not sure what you mean when you say "it was down for almost two weeks", but neither EC2 or Amazon.com have suffered outages anywhere close to that.

Amazon has showed a surprising level of capacity in identifying markets for disruption and jumping in. VMWare is just the latest target. How soon until Amazon drops Android (even heavily modified) and just does what Ubuntu is doing (to a limited extent) and then expanding on it massively - dropping a *nux OS on phones, tablets, and even computer hardware and discounting it (call it RiverOS), linking it to their servers with a free cloud service (Raincloud) and office productivity software (I'm running out of Amazon appropriate names).

This is what I find most concerning: You tell them you have a business when you place your order and all of a sudden they are providing you with: laptop/desktop, smartphone, tablet, merchant payment processing, website, distribution (through Amazon...), online storage, email solutions, and they even help you with funds (banking) - all running Amazon certified and approved software solutions. Tag line? Buy your business! Save money!

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

I'm not sure how VMware hopes to do anything other than slow the bleeding here...

VMware has a decent UI and fairly easy setup, so it's still a viable sale on admin savings for smaller outfits, and it has the strong brand, track record, and 3rd party support to sell to larger traditionalist outfits; but they are fundamentally trying to sell software licenses for not a whole lot less than Amazon sells VMs actually running on actual hardware(and, on the other side of the table, Microsoft is essentially offering Hyper-V for free if you buy Windows server, which pinches VMware hard on the in-house and MS-comfortable enterprise side).

I'm not saying VMware is a bad product or anything, my experience with it has been pretty good; but the margins they want to command just for selling a hypervisor, in a market where Amazon and their cloud buddies will throw in a free hypervisor if you buy some(very cheap) server time and Microsoft and the Linux vendors will throw in a free hypervisor if you buy the OS you need to buy anyway... That can't last.

Any executive that isn't sufficiently open minded (read:paranoid) about where the next threat might come from and actually opens his mouth to say dismissive stuff like: "I find it really hard to believe that we cannot collectively beat a company that sells books" deserves to have his lunch taken.

Well judging from the article's picture, he has a future as an understudy for the Blue Man Group.

Although there's a chance that Amazon just blue themselves, and they may end up with a mess on their hands.

We were setting up a streaming service when the outage occurred, it blew out the setup in progress we had been working on. Although the cloud was up all services for all customers were not. We were one of the ones affected. We had to fall back on our previous solution which has worked out great since

Another way to think about this is by using the famous Pets vs. Cattle analogy from William Baker at Microsoft.The analogy goes as follows: In the legacy service model, where you think of your machines as pets and give them names like dusty.cern.ch, they are raised and cared for. When they get ill, you nurse them back to health. In the cloud-aware tenant service model, VMs are treated like cattle, given number names like vm1002.cern.ch, they are all identical, and when they get ill, you shoot them and get another cow.Future application architectures should use cattle. VMware features that nurture/protect the VM are less important in the cattle service model.

Any executive that isn't sufficiently open minded (read:paranoid) about where the next threat might come from and actually opens his mouth to say dismissive stuff like: "I find it really hard to believe that we cannot collectively beat a company that sells books" deserves to have his lunch taken.

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

Rule #1: Never underestimate Amazon. Or Apple. Or Google.

I think you've taken the quote too literally, I don't think vmware is stupid. The CEO is, another story, why you'd let yourself be qouted like this is anyone's guess. I think he's pissed because Vmware, which specializes in server virtualization software, is being beaten out by Amazon, which specializes in economies of scale (as far as I can tell).

Rule #1 in business should be: Adapt, or die. - This I agree with, vmware will have to change up their business if they want to stay relevant and/or grow. Other options are too cheap *not* to look into at this point in some if not most cases..

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

I find it really hard to believe that we cannot collectively beat a company that sells books.

If you are willfully blind to new sources of competition, you deserve to get steamrolled. This attitude makes me even less likely to use VMWare since they clearly don't plan on remaining competitive.

This was not an internal speech, this was effectively a rallying speech to their partners (aka share croppers). They don't want their partners to abandon them. It is sort of like saying "No sons of Rome shall let smelly barbarians burn their crop and take their wives," all stentorian like. Sometimes it works sometimes it doesn't, but it isn't a bad way to buck up your underlings.

The only reason to worry would be if they started believing their agitprop.

The big problem with Amazon as a competitor is that Amazon doesn't seem interested in making any money. They have razor thin margins and their margins get thinner every quarter. For example, they greatly discount ebooks in order to push the sale of Kindles, but then discount Kindles in order to push ebooks. No wonder Borders went out of business and Barnes and Nobles is quitting the ebook business.

If I were Google, Apple, Microsoft, VMWare, or even General Motors, I would be scared of Amazon. (Yes. General Motors. Amazon will one day will start selling cars for 1/2 the price and will include free shipping and one year Amazon prime membership.)

We were setting up a streaming service when the outage occurred, it blew out the setup in progress we had been working on. Although the cloud was up all services for all customers were not. We were one of the ones affected. We had to fall back on our previous solution which has worked out great since

If data loss brings you down for two weeks then you didn't have a sufficient backup or recovery plan.

Whatever you're running on now will have the same problem when it fails.

Rule #1 in business should be: Adapt, or die. - This I agree with, vmware will have to change up their business if they want to stay relevant and/or grow. Other options are too cheap *not* to look into at this point in some if not most cases..

VMware has been looking to adapt to profound changes in the hypervisor market, but the results have been more like Microsoft than anyone else. They're concentrating on management and orchestration tools, not the commodity hypervisor which has been grabbed by Xen, KVM and to a lesser extent and within Microsoft shops, Hyper-V. The base VMware ESXi hypervisor is available gratis although a free license key is still needed.

However, VMware really overestimated the tenacity of their hold on the enterprise virtualization market when they reacted to changes in the hardware market by trying to license vRAM with vSphere 5.0. The enormous backlash caused them to rescind that licensing model in 5.1, but between those announcements there was a lot of defection from the platform.

Amazon AWS uses Xen, incidentally, like the majority of cloud providers who've been around for a while. Other open-source software that they use is not publicly acknowledged, but like Google's Ganeti most likely uses a variant of DRBD to mirror EBS volumes between commodity servers, and not conventional and expensive SANs or even NAS.

I find it really hard to believe that we cannot collectively beat a company that sells books.

If you are willfully blind to new sources of competition, you deserve to get steamrolled. This attitude makes me even less likely to use VMWare since they clearly don't plan on remaining competitive.

This was not an internal speech, this was effectively a rallying speech to their partners (aka share croppers). They don't want their partners to abandon them. It is sort of like saying "No sons of Rome shall let smelly barbarians burn their crop and take their wives," all stentorian like. Sometimes it works sometimes it doesn't, but it isn't a bad way to buck up your underlings.

The only reason to worry would be if they started believing their agitprop.

I see, then it was an insult to their partners' intelligence. Well played, VMWare.

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

VMWare is a terrific suite of products, but the business and marketing monkeys at the company are problem numero uno. They need to face whatever counts as a corporate firing squad these days. Customers have been complaining for Years about the pricing models, only to have them fall on deaf ears. VMWare offers SMBs expensive CrippleWare. VMWare has had years to watch the gradual ascent of Amazon in the cloud space and has done nothing to improve customer incentives. VMWare is a tale of great engineering and piss-poor customer relations and business vision.

The big problem with Amazon as a competitor is that Amazon doesn't seem interested in making any money. They have razor thin margins and their margins get thinner every quarter. For example, they greatly discount ebooks in order to push the sale of Kindles, but then discount Kindles in order to push ebooks. No wonder Borders went out of business and Barnes and Nobles is quitting the ebook business.

If I were Google, Apple, Microsoft, VMWare, or even General Motors, I would be scared of Amazon. (Yes. General Motors. Amazon will one day will start selling cars for 1/2 the price and will include free shipping and one year Amazon prime membership.)

Matthew Yglesias figured Amazon out: "That's because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers."

On a more serious note, I expect Azure to match the price cut, as Microsoft has deep pockets. Google will probably price match too.

I find it really hard to believe that we cannot collectively beat a company that sells books.

There's your first problem; maybe you should realize that your competition sells a lot more than books nowadays. A company so stupid as to think that their competitors haven't changed since the year 2000 deserves to die.

As both a VMware and AWS user, I welcome the price cuts at Amazon; it gives me leverage against VMware! We have thousands of VMs running on hundreds of hypervisors in multiple datacenters around the world. When I plan resource expansions, I don't even think about the price of hardware. On average the VMware licensing costs 2-3 times the price of the hardware its running on. This is VMware's big problem: the cost. Infrastructure isn't cheap, but VMware is rediculous, but they have everyone over a barrel as they were first to market and the most "enterprise", whatever that means. I've run Xen, KVM, RHEV, just about every virt platform you can think of, but execs know about VMware, and thats what they trust, and thats what we buy.

I personally have "cloud sourced" hundreds of our web servers to the cloud, and it works great. AWS offers flexibility incase of increased load that physical virtualization just can't compare with. It also solves the disaster recovery problem.The fact I can build my "cloud" VMs locally and convert them to AMIs is awesome.

The place VMware rules that no one else can touch is in enterprise class in-house virtualization of mission critical systems. It will be many years, if ever, before you see PCI/SOX apps and data in the cloud. Yes, there is the "GovCloud", but execs are still leary of the cloud.